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Moderator: Infoseek co-founder Todd Jonz, our newest TeleBlog contributor, continues our copyright debate. See his bio at the end. Welcome, Todd! – D.R.

imageRob Preece’s thoughts about copyright and DRM are certainly rich in altruism, but I’m not sure I understand the economic analysis behind them.  Here’s how I see the economics of intellectual property and DRM in the entertainment industry.

Content owners view intellectual property in terms of its value, which they wish to maximize and monetize in any way possible.  Consumers view intellectual property in terms of its cost, which they wish to drive as low as they can, to zero if possible.

Content owners justified DRM for years by arguing that rampant piracy was killing their business.  As the movie industry comes off a year of record-setting profits and the recording companies virtually trip over one another in their race to liberate the music they sell online from the shackles of DRM, we can pretty well conclude that the piracy argument was so much smoke and mirrors.

Pirates vs. other customers: Can you really tell ‘em apart?

Yes, piracy exists; it always has, and it always will.  But study after study has shown that the vast majority of consumers, certainly enough to sustain a healthy market, will pay a fair price for digital content if it is made available to them in the unencumbered formats they desire.  It’s also difficult sometimes to differentiate pirates from customers; multiple studies have disclosed that people in the coveted 18-to-34 demographic who share music on P2P networks also spend more each year on CDs than their non-file-sharing brethren.  So much for the “piracy is killing us” assertion.

The “rights management” afforded by DRM that is of primary interest to content owners and consumer electronics manufacturers is their right to “manage” where and how consumers use their content.  DRM has served to date as their tool of choice in creating new ways to monetize that content.

Why many device-makers love DRM lockups

DRM allows content to be tethered to individual devices.  “Wanna use that digital content you downloaded to your computer on your iPod?  We’d be happy to sell you another copy.  In fact, we’d be happy to sell you as many copies as you have devices!”  Content quality can also play a role in monetization stratgies.  “Like that 128kbps MP3 track you just sampled?  It sounds even better at 320kbps—for only fifty cents more!”  The interests of device manufacturers are closely aligned with those of the content owners, since DRM also allows content to be tethered to a specific platform.  “All those titles you’ve purchased from the Sony bookstore won’t be worth much if you upgrade to an iRex iLiad.  Have you considered upgrading to the new Turbo Sony Reader Plus instead?” The monetization strategy is clear:  find as many ways as possible to sell the consumer the same content repeatedly, and lock him into your proprietary product ecosystem as thoroughly as possible.

The mouse gouge

Note that the only role copyright law plays in this model is to serve as the legal foundation on which a complicated system of market controls has been constructed.  The original goal to protect content creators sure seems to have become lost somewhere in this economic tug-of-war, as has the silly concept that, in the interest of the public good, content should pass into the public domain after a reasonable period of time (originally a mere fourteen years under U.S. copyright law.)  After all, why on earth should the public finally be allowed to embrace Mickey Mouse freely as a part of its culture when Disney can squeeze nickels out of the rodent’s nose for another couple of decades?

I agree with Rob’s assertion that copyright and patent law are important to a working economy.  But until the rights these laws confer are applied in new and creative ways in service of significantly new and innovative business models, it’s the content owners who will suffer the greatest economic losses in the near term due to sluggish market growth.  In the interim, since consumers will still be unable to purchase the content they want in an open market at a fair price, they will continue to find ways to drive its cost to zero.

To sum up: Copyright isn’t dead—but it’s no longer the same rock

Copyright may not be dead, Rob, but it’s certainly not the rock it once was.  The marketplace has decided.  Let’s hope the publishing industry learns a few lessons about DRM from the experiences of the music industry, and that it is smart enough to favor long-term market growth through unencumbered content over short-term market share through DRMed content.

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Bio: Todd Jonz is a retired software engineer, amateur musician, and certifiable gizmologist who lives in the well-wooded mountains of southwestern Vermont.  During his career in the Silicon Valley he worked for ROLM/IBM, 3Com, and Sun Microsystems, and was a founder of Infoseek, the first commercial search engine to arrive on the Internet.  Today he spends the bulk of his time blowing his own horn, which happens to be a trombone, and working sporadically on a wide variety of mostly unrelated software development projects of personal interest.  Amongst these, at present, is an e-publishing toolkit with which to create content optimized for multiple platforms (starting with his iRex iLiad, iPod Touch, and Palm TX) from a common set of XML source files.

 
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